Trusts and Estates 101: From Those In The Know To Those Who Need To Know

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Now or Later: Choosing Between a Will and a Revocable Living Trust

A Last Will and Testament is the most essential part of any estate plan. It explains who your assets will pass to, how they will pass (outright or in trust), who will be in charge of administering the assets and who will care for your minor children. For many people, a properly drafted will is sufficient to allow their estate to pass as they wish.

In some circumstances, however, a will is secondary to another document known as a Revocable Living Trust. A revocable trust is trust established and funded during the lifetime of an individual (the “Grantor” of the trust). At the Grantor’s death, a short will known as a “pour over will” pays any remaining assets in the Grantor’s estate to the revocable trust. Revocable trusts have become an extremely popular alternative to the traditional last will and testament plan.

So, which is the better fit for your planning needs? Consider these ten factors:

Probate-One of the main advantages of a revocable trust is the avoidance of the process known as probate. During the probate process, a will is submitted to a court (in New York, the court is called the Surrogate’s Court) and the named executor under the will is granted the power to distribute the Grantor’s assets. The process can take several months and may cost a significant amount in legal and court fees. A properly drafted and administered revocable trust can minimize or eliminate the need for the probate process. This is especially important for individuals with property in multiple jurisdictions.

Funding-In order to ensure that a revocable trust works properly, assets must be transferred to the trust before the Grantor dies. Any assets not in the trust at the date of death will have to pass through the probate process. This negates one of the main benefits of a revocable trust. A will requires no lifetime transfers or retitling of assets.

Administration-During the Grantor’s lifetime and after they die, a revocable trust must be administered in accordance with trust instrument. A will requires no lifetime administration.

Cost-An estate plan that includes a revocable trust will typically cost more up front than a plan that includes only a will. However, the costs after an individual dies may be less for a revocable trust due to the limited or nonexistent probate costs.

Privacy-Once a will is submitted to the court, it becomes part of the public record and the general public can access it. The trust instrument, unlike a will, is not submitted to a court and the beneficiaries of the trust can remain private.

Tax Planning-One common misconception about revocable trusts is that they provide tax planning benefits over wills. In reality, both wills and revocable trusts can be drafted to minimize or eliminate estate and other transfer taxes.

Revocation and Amendment-Both wills and revocable trusts can be amended or revoked any time prior to the Grantor or individual’s death. After the Grantor’s death, both become irrevocable and the fiduciaries of the estate or trust cannot change the terms of the will or trust.

Disability-The trust agreement creating a revocable trust will include successor trustees who will serve if the initial trustees can no longer act as trustees. It is also common to have a second person serve as a co-trustee with the grantor of the trust. If the grantor becomes disabled or incapacitated, the remaining co-trustee or successor trust can administer the trust’s assets without applying for guardianship over the grantor.

Ability to Challenge-While will contests are more common, it is also possible to challenge the validity of a revocable trust on the basis of a lack of capacity on the part of the grantor and the trust being created due to the undue influence of another party.

Asset Protection-During the Grantor’s lifetime, a revocable trust provides no asset protection from creditor claims. After the Grantor dies, the Trust can be structured to protect assets from creditor claims. This is option is also available when drafting wills.

The choice between a will and a revocable should be well thought out and discussed with your advisors. While a revocable trust does provide certain advantages to a traditional will, it must be properly drafted, funded and administered to ensure that you receive the maximum benefit.